Oil falls below $84 on US supply gain forecast

LONDON - Oil fell more than $1 to below $84 on Tuesday, weighed down by a stronger dollar and ahead of expected news of a rise in US crude stockpiles.

By (Reuters)

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Published: Tue 16 Nov 2010, 6:14 PM

Last updated: Mon 6 Apr 2015, 11:26 AM

The dollar touched a six-week high against the euro as investors cut exposure to commodities and risk and as anticipation of the Federal Reserve’s $600 billion bond programme pushed up US Treasury yields.

Concerns over the health of the Irish economy also weighed on the euro.

US crude for December dropped by $1.26 per barrel to a low of $83.60 by 1125 GMT, extending losses from the previous session. ICE Brent for January fell $1.00 to $85.76.

Edward Meir, senior commodity analyst at brokers MF Global in Connecticut, said he expected markets to keep a wary eye on Ireland and on China, which has been tightening monetary policy.

“Prices (are likely to) remain slightly on the defensive as investors head for the relative safety of the dollar while waiting for developments in Ireland and China to unfold,” Meir said.

The drop in oil prices came most sharply at the front end of the futures market, helping to steepen the contango in the forward curve. The December 2013 futures contract for US crude had lost just 39 cents to $88.60 by 1125 GMT.

Analysts expect crude stockpiles in the United States, the world’s largest energy consumer, to have edged up last week, following a surprisingly large drawdown the week before.

Crude stockpiles were seen rising by 400,000 barrels, while distillates were expected to fall by 1.6 million barrels, a Reuters poll showed.

Industry group the American Petroleum Institute (API) will issue its latest US crude oil inventory data at 2130 GMT on Tuesday, followed by government data from the Energy Information Administration (EIA) on Wednesday.

Crude has fallen nearly 5 percent from a 25-month peak of $88.63 last week. The recent sell-off was sparked by fears that China may raise interest rates to slow its economy.

The dollar has rebounded strongly over the last two weeks as the impact of the Federal Reserve’s quantitative easing has pushed up US bond yields.

A stronger dollar can weigh on oil prices because it attracts investors away from dollar-denominated crude by making oil more expensive for users of other currencies.

With bond yields not far from a three-month high near 2.97 percent hit on Monday, US assets look attractive, analysts say.

The 10-year US Treasury yield soared 17 basis points on Monday for its biggest one-day rise since June 2009, giving a broad lift to the dollar.

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